Consumption trends in the wine industry.

Starting with the crisis generated by Covid and continuing with political unrest, wars, economic uncertainty, and climate disasters, the recent years have led to an increase in the population's anxiety levels and triggered changes in purchasing behavior.

The Covid pandemic, the way it was communicated and managed globally, has affected mental health and well-being in various ways, including through isolation and loneliness, job loss, financial instability, and exacerbation of pre-existing illnesses. Many adults have reported symptoms of stress, anxiety, and depression. About three in ten adults admitted to experiencing such symptoms at the end of the pandemic.

The pandemic was followed by wars, and social and political movements, so anxiety and instability intensified. Against this backdrop, the 2024 elections are expected to escalate social tensions and trigger debates and polarizations worldwide.

Economic uncertainty, especially inflation, has instilled a new financial mindset. Price increases make it difficult for consumers to cover their expenses in 2023. Almost 3 out of 4 consumers have expressed concern about the rising cost of essential daily products. People are forced to make drastic cuts, switch to cheaper options, and look for ways to save money. Saving has become a priority.

In all these years, climate disasters have not slowed down. Extreme weather events, widespread fires, severe droughts, and devastating floods have wreaked havoc in communities worldwide. As temperatures continue to rise, so does consumer skepticism about measures to combat climate change. Consumers realize that their contributions cannot do much, and they want organizations to step up and provide clear, quantifiable evidence of their environmental commitments.

In the latest report published by Euromonitor International:

73% of consumers facing stress and anxiety said these issues had a moderate or severe impact on their daily lives.
37% of consumers believe there will be more political disturbances in their country in the next five years.
34% of consumers share their opinions on social or political issues on social networks.
74% of consumers were concerned about the rising cost of everyday items in 2023.
44% of consumers planned to save more money in 2023.
64% of consumers tried to have a positive impact on the environment through their daily actions in 2023.

What is the impact on the wine market?

The trends that previously shaped the global wine market will transform in the next five years as the world emerges from the Covid-19 pandemic but remains in a period of political-economic instability and climate change. The effects of these changes will be significant, especially because they occur against a backdrop of a declining consumption trend that already exists.

1. Fewer people are drinking wine, and they are drinking less wine each year.

An age segment analysis shows that the boomer generation leads in the share of consumption. This is concerning because significant additional sales growth cannot be achieved in this age segment. A study in the USA shows that 28% of people aged 50 to 59, even if they consume alcohol, do not drink wine regularly; they buy wine for special occasions but not for daily or weekly consumption. Younger generations prefer other alcoholic beverages over wine. The same study shows that 35% of consumers aged 21-29 consume alcohol but not wine; wine is seen as their parents' drink, not theirs.

Recent growth in consumption was observed post-Covid and was driven by young, socially active consumers who returned to consumption once bars and restaurants reopened. Purchasing rates in bars and pubs, in particular, increased sharply, mainly due to young adult consumers.

These young wine consumers are often more engaged and interact differently with the wine segment. Their knowledge is limited, they tend to drink less wine each time, and they have the highest levels of moderation. They are also less engaged with mainstream brands. However, they are more willing to explore the category and have a "less but better" attitude. This contributes to the ongoing trend of premiumization of wines.

2. Premiumization is increasing across a broader consumer base.

Premiumization continues to provide growth and excellent returns. As the world enters a period of increasing economic fragility, those with financial stability – usually consumers with lower debt levels and secure jobs – will offer increasingly significant opportunities for producers of high-quality wines and sparkling wines.

However, this trend is threatened by economic instability, which can leave younger consumers with less secure financial situations and employment prospects over the years.

Premiumization is evident in the sparkling wine sector, where premium variants are experiencing strong growth, but it is also true for still wines, although at lower levels.

Champagne and Prosecco continue to grow, and high-end products are gaining in all segments of sparkling wines. There is a post-Covid attitude shift in the sparkling wine category, moving from being exclusively associated with formal events and special occasions to frequent consumption associated with relaxation.

3. Moderation is increasingly driven by economic concerns.

Campaigns promoting moderate alcohol consumption carried out globally in previous years, have also affected the wine industry. While previously, the effect was due to individual health and well-being concerns, now moderation in consumption is driven by economic instability. Economic worries and the need to reduce household expenses lead to moderation in alcohol consumption, including wine.

Moderation – both as a choice for a health-beneficial lifestyle and as a cost-saving strategy amid growing inflation – takes various forms. Consumers choose non-alcoholic beverages over alcoholic ones, prefer various lower-alcohol cocktails, avoid participating in events where alcohol is consumed, and reduce the amount of alcohol consumed at private events.

About half of all adult consumers of alcoholic beverages surveyed as part of an IWSR study expressed interest in moderating alcohol consumption. The trend is particularly strong in European markets where economic confidence is low.

Totally or partially dealcoholized wines easily find followers in this trend. Partially dealcoholized wines with low alcohol content perform better than those without alcohol in many markets.

The impact of inflation is felt more strongly in the low- and mid-priced wine category.
Costs, especially those due to inflation, continue to be a problem. The higher cost of acquiring bottles, auxiliary materials, production, transportation, and employee remuneration is becoming an increasingly significant issue.

The production capacity of wineries is significantly impacted by a lack of labor and supply chain issues. Delivery gaps, one of the supply chain issues, will gradually ease but will have an impact on the production process. All these factors have exerted pressure to raise prices, a pressure that has affected both wine producers and distribution channels and sellers.

Given the higher production costs in an inflationary environment, a widespread price increase is expected to continue. The impact of the increase will be more easily felt in the premium category compared to the medium and low-price categories. Considering market dynamics, producers may adopt a gradual price increase in the low- and mid-priced wine segment to have a smaller impact on consumers and overcome resistance to purchasing a higher-priced product for the same quality offered. This policy can affect winery margins, making it difficult for them to pass through the cost of inflation. If this trend is correlated with the "less but better" consumption trend, a decrease in the consumption of lower-priced wines can be expected.

5. Political-economic concerns will keep people at home longer.
If the Covid pandemic forced people to stay at home, growing economic concerns will accentuate the trend of consuming at home and will be increasingly significant in the future, as declining disposable incomes force many people to reduce their visits to restaurants.

Post-Covid recovery has been uneven in many countries and regions, with some experiencing a rapid recovery in the hospitality sector, while others have a slower recovery. Some locations still struggle to cope with fewer customers and rising costs.

Inflation and the significant increase in costs in the HoReCa sector automatically lead to the need to raise prices in locations, causing consumers to limit their restaurant visits or reduce the amount spent.

On the other hand, the pandemic period forced consumers to find new ways to have at home the dishes and drinks they were accustomed to. Home delivery platforms and online beverage commerce have generated a higher level of sophistication in consumption. All these, together with home streaming and entertainment services, make the impact of inflation easier to assimilate by consumers who choose to stay at home.

Inflation has instilled a new financial mindset, but consumers will not compromise on what they truly desire. They hunt for the best deals, and this extends beyond price because they find smart ways to maximize their budgets without sacrificing quality. By consuming at home, they reduce expenses to focus on needs but make sure it does not impact their lifestyle.

Brands need to focus on the satisfaction their products and services can offer. As long as customer satisfaction is strong, customers are inclined to treat any brand's offerings as indispensable.

Medallia's analysis found that 37% of consumers buy fewer (or cheaper) goods, 36% avoid dining out at restaurants, and 22% avoid travel and leisure activities.

6. The impact of climate change is manifesting in various ways.

Consumers are exposed daily to information about climate change, inducing stress and an evaluation of its impact on the environment. They have concluded that they cannot address the climate crisis alone, even though they have individually taken measures to live sustainably. To make a real difference, the population is becoming more attentive and analyzing the activities of companies and governments. They know that their eco-friendly choices help to some extent, but real change must be a collective effort, so they choose to push responsibility onto businesses and governments.

They want organizations to step up and show evidence of their environmental commitments, rejecting empty promises or false narratives.

In recent years, there has been a positive and growing trend for organic and "natural" wines, and demand for them has increased significantly. Although perceived as more expensive, they fit the "less but better" trend and address health and environmental concerns. These alternative wines are well-placed and stimulate the shift towards premiumization. This trend is also a way for wine to attract younger categories who have not yet approached wine, as long as full transparency from the wine-making process to packaging and recycling methods can be ensured. Consumers seek concrete evidence of responsible production, packaging, and transportation practices that reduce the CO2 footprint, but at the same time, these must be validated.

New labeling systems are expected to provide additional clarification of production processes so that consumers are better informed, and buyers immediately know how their purchasing decision or behavior makes a difference.

Producers will need to explain their product's ecological claims through packaging and promotion in simple and readable language. If environmental aspects are mentioned in promotion, they should specify whether they refer to the product, packaging, or just a portion of the product or packaging. Certifications from an official verification organization must be communicated on the label.

Wine is vulnerable to all these uncertain socio-economic and environmental perspectives, and the lack of commitment and consumption in the youth category during their prime consumption years does not bring encouraging trends. But all this does not mean that we have to live with these current trends; there is still time for the wine industry to adapt. A collective effort is needed for these issues to change; individual efforts made by wineries are commendable but will not succeed in significantly changing the industry and consumption.

Article extracted from the Wine Marketing course conducted by Ioana Bidian,
Online Course: WineUp Academy
Consultancy Company: Artvinium